Employee with Appreciated Stock Options

Problem: This person came to us with a significant portion of their net worth in their employers stock options which were granted as additional compensation. Nearly 30% or their net worth was attributed to the difference between grant prices to market price for the stock. The client also had as a goal early retirement. We developed a plan to exercise their options gradually and helped the client decide which to exercise based on the ratio of current in the money value to future potential gains (Black-Scholl model was used). The exercise of the options was considered also in relation to the goal of early retirement with multiple scenarios projected.

Our Solution:

Devising a strategy to exercise options that were in the money as they were vested and out of the black-out period.
Fully modeling the tax implications of the exercise.
Creating a portfolio allocation and investment policy statement to make sure the proceeds of exercise were invested properly to help insure the client’s early retirement.

The benefits to the client:

The client’s early retirement was nearly ensured through the preservation of wealth generated by the options.
The risk in the client’s portfolio was reduced to roughly 1/3 that of the employers stock.
All options were exercised as cashless transactions so the client would not have the risk of holding the stock and having it plummet while owing substantial tax.
The client was set up in a well diversified portfolio that was fully tailored to meet their long term goals and objectives.
The client’s peace of mind was greatly enhanced since they no longer had to worry about retirement.